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CS Professional · Corporate Restructuring, Valuation and Insolvency · Preparation and Approval of Resolution Plan

In a pre-packaged process for Narmada Steels Pvt Ltd, the base resolution plan provides for full payment of financial creditors but pays operational creditors only 70% of their confirmed claims as per the updated list. What is the consequence under the Code?

The resolution professional must invite prospective resolution applicants to submit competing plans. A base plan that impairs operational creditors' claims cannot be approved directly by the CoC; claims are impaired when confirmed claims are not paid in full.

  1. AThe CoC may still approve the base plan by a sixty-six per cent. vote under sub-section (4)
  2. BThe resolution professional must invite prospective resolution applicants to submit plans to compete with the base planCorrect
  3. CThe Adjudicating Authority must reject the process immediately
  4. DThe plan is automatically approved because financial creditors are paid in full

Explanation

Section 54K(5)(b) states that where the base plan impairs claims owed to operational creditors, the RP shall invite prospective resolution applicants to compete. Sub-section (4) allows approval only if operational creditors' claims are not impaired. Paying 70% is impairment under Explanation II.

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